Download Are a Free Market Economy

This paper was presented by Dr. Jorge A. Sanguinetty in a panel discussion entitled “Matters of Transition”, held during
the 11th annual meeting of the Association for the Study of the Cuban Economy (ASCE) at the Biltmore Hotel in Miami,
Florida, 2001.
OLSONIAN QUESTIONS ON THE FUTURE OF CUBA:
ARE A FREE MARKET ECONOMY AND A DEMOCRACY VIABLE?1
By
Jorge A. Sanguinetty
Center for Applied Studies in Economics
DevTech Systems, Inc.
1.
Introduction
In his latest book, Olson (2000) studies “the enforcement of power and the role of
citizenship” (Cadwell, 2000). He focuses on the process by which the common good
could be a potential factor to determine fair government. The author addresses this issue
by trying to explain two significant phenomena: “Why was economic performance so
much better, especially in relation to expectations, after the defeat of fascism than after
the collapse of communism?” “Why do the formerly communist countries suffer so much
from official corruption and organized crime?” If we are to imagine a Cuba after Castro,
that is, once we are able to establish economic and political reforms in that country, I ask
myself the following question: How could we avoid or minimize the repercussions of
corruption and crime and what needs to be done to establish a free market economy
within a democratic context?
This paper is based on the premise that a market economy is the best vehicle to achieve
economic development and, consequently, this system as such is a universally desirable
common good. Despite the fact that it may be possible to achieve economic development
without a completely consolidated market economy, the former has not only proven to be
the most effective economic system in terms of development, it is also the fairest in terms
of opportunities of growth for all its citizens. Therefore, this paper shall focus on
analyzing the difficulties that come with establishing a free market economy in Cuba —
once the country is able to undertake the reforms needed for its implementation— and
how to pave the way in order to avoid the numerous obstacles that lie ahead. The
1
I appreciate the comments made by Roger Betancourt, Rolando Castañeda, Mauricio Font and Luis Locay
and those who attended the presentation of this paper during the 11th Annual Meeting of the Association
for the Study of the Cuban Economy at the Biltmore Hotel, Miami, Florida, August 2-4, 2001. I would like
to thank Mercy Sanguinetty for her editorial work on the original in Spanish, Frederique Kramer-García for
the English translation, and Margarita Tassi for the layout. Of course, I shall remain entirely responsible
for the final product.
1
establishment of the common good, “market economy”, to use Olson’s terminology,
implies the existence of some form of collective action. In this paper we shall apply the
same concept to another common good: “democracy”. Although the implementation of a
political system that might be called democracy is likely to be less complex than that of a
market economy, it must be taken into account that trying to establish both systems at the
same time increases the difficulties that may arise during this process.
Since I would like this paper to circulate in Cuba, I must stress that by “market economy”
I am not referring to a “wild capitalism” economy as some have cunningly tried to
suggest. Neither Marx’s definition of capitalism nor modern market economies, are
predatory economies, but, in fact, wealth-creating economies. All market-oriented
economies are regulated by legal systems based on specific rules and regulations and
supported by institutions and organizations entrusted with safeguarding their
compliance.2 These regulations are designed to uphold and guarantee institutions such as
private property rights, contract security, free trade and business competition as well as to
avoid or limit monopoly. But a free-market economy does not necessarily define all
forms of capitalism. Indeed, a true free-market--or simply market--economy is defined by
a vast array of economic opportunities and various degrees of participation. Its system,
built on individual freedom and civil rights, allows a person to choose from diverse
employment opportunities, to spend freely and according to his or her income, to live
wherever he or she chooses, to independently buy and sell any type of legally acquired
property, and, to set the terms of any transactions or contracts with third parties without
state intervention. This evidences why most successful and dynamic market-oriented
economies have always been, and still are, those that operate within democratic nations
where all citizens enjoy unrestricted civil rights and individual freedom.
However, despite its obvious benefits, developing a market economy from a centralized
and distorted socialist economy, which, furthermore, operates under an absolutist
government, is far from being an easy task, as the experience of more that 25 ex-socialist
countries has shown. In Cuba –that is, once we are able to introduce significant reforms–
conditions will likely be extremely difficult, depending on the kind of political leaders
that will succeed the one-man powered regime currently in place. The obstacles to be
expected include a generalized opposition for reasons ranging from lack of
comprehension and an apprehension towards a market economy to ideological prejudice
and specific interests, whether personal or party-related.
However, for the purpose of this analysis, it is particularly important to determine which
factors, aside from the actual implementation of a market economy and the suitability of
macroeconomic measures, are necessary in order to accomplish the long-expected
development. After all, there are indeed a few economies, however imperfect they may
2
We are applying the terminology used by the New Institutional Economics (NIE), which distinguishes
institutions from organizations. The first refers to entities involving concepts and styles of operation, such
as property rights, while the second defines teams of individuals put together in order to carry out specific
projects or functions, as is the case with firms or companies and government agencies. For a more in-depth
analysis of these and other NIE concepts, please refer to Betancourt (1991) and Harriss, Hunter and Lewis
(1995).
2
be, that come rather close to our ideal of a market economy, even though they have
lacked satisfactory or stable growth rates. One might argue that one simple reason for this
is that these economies have been unable to fully implement their market processes or
that the way they were run, through the application of correlative economic measures, has
not been the most suitable to unleash the country’s full potential and gain the trust of
investors who would be the main growth source.
Aside from the validity of these arguments, one must not forget that the companies,
which make up the structure of the economy, together with human capital, are the most
important energy sources in stimulating economic development. Without these two
factors, notwithstanding the fact that both operate in a market economy, no measurable
growth is possible. In fact, sometimes the vitality of such companies can reach such a
level that it may generate sustained economic development, and this, although it might
not be a fully developed market economy. It should be stressed, however, that, under no
circumstances, this should be a valid reason to disregard the establishment of a marketoriented economy. Companies from various sectors, such as manufacturing, agricultural,
commercial, service, energy or transportation, are the core of a nation’s economic
activity. The country’s macroeconomic measures, together with its legal system, will
dictate the conditions, which can vary as to suitability, under which companies will drive
the country’s process of growth.
Therefore, the viability of a market economy in Cuba and the way it should be
implemented in order to allow its growth must be analyzed in the light of two scenarios
or, more specifically, two arenas of operation: on the one hand, state reform, on the other,
company development and related network of inter-company relationships. We should
consider all forms of state reform, ranging from institutional, organizational and legal
reform to targeting the people responsible for those changes and for managing the
systems that will consequently emerge, in order to build an environment that will allow
companies to operate, grow and contribute to the country’s economic development.
However, we will need more than mere reforms to set up the companies that will make
such contributions. These companies, big or small, will have to be forged by a great
variety of constituents which must act independently, without state intervention,
following their own interests, i.e., to generate profit and obtain financial gains which
justify the investment, facing a moderate risk level, but within the rules established by
society and under state supervision.
Within this framework, the role of the state will be to monitor compliance with the rules
that define a market economy, and, under no circumstances, to manage these companies,
or even become their owner or co-owner. Observance of the rule of law shall focus
mainly on complying with individual freedoms and rights, property rights, enforcement
of contracts, and tax regulations, particularly enforcing tax payment by each and all
taxpayers, both personal and corporate. Its role shall also include ensuring efficient,
transparent, and appropriate use of resources by government administrators. A significant
factor in the creation of these companies will be the country’s ability to create and
safeguard an environment that will attract sufficient foreign investment while, at the same
time, stimulating the efforts of domestic investors. This way, even though it might be
3
relatively easy to set up a market economy in Cuba (and we shall see that this is not the
case), important questions still remain. Will the companies responsible for the growth of
the Cuban economy automatically emerge once reforms have been undertaken? Will
these companies be able to generate sufficient jobs, income levels and productivity to
allow a gradual and systematic increase of the Cuban population’s standard of living?
The answers to these questions are directly linked to the type of reform policies that Cuba
chooses to undertake and its ability to stimulate investment activity. Therefore, this
analysis shall focus mainly on the processes that should, or could, take place at
governmental level, instead of (due to lack of space rather than importance) focusing on
the expected behavior for companies and, more generally, citizens in a market economy.
This paper has been divided into several sections, starting with this introduction. The
second section presents some definitions and concepts that will serve as background
information. The third section introduces an overview of the evolution of the Cuban
economy, highlighting its most relevant elements for the purpose of this analysis, such as
the reduction of the level of the economy’s complexity from 1959 until the beginning of
the nineties. The fourth section offers a brief discussion on the evolution of Cuba’s
economy, starting with the effects of the crisis that was triggered by the dissolution of the
Soviet Union. The purpose of the fifth section is to analyze a few examples of
implementation of market-oriented economies that might be relevant for Cuba. The sixth
section gives an overview of the measures that should be implemented in Cuba to
establish a market economy. The seventh section focuses on Olson’s analysis of the logic
of collective action and examines the evolution of those countries that abandoned
socialism. The eighth section presents the results of the application of Olson’s theories to
a Cuban transition process. Finally, the ninth section presents a few conclusions on this
analysis and the implications of some aspects that might be of some interest to different
strata of Cuban citizens as well as other agents interested in what might happen in Cuba
after Castro.
2.
Background Information
The question set forth in the title of this paper, i.e., whether it is viable to set up a market
economy in Cuba, is an issue that was previously raised in a much wider context by
Betancourt and Seiglie (1998), as they questioned the viability of economic development
as such in some countries. But instead of limiting their discussions to the possibility of
achieving development, the authors addressed the conditions that are necessary to enable
development itself. In other words, what are the factors that enable development or make
it possible? Aside from concentrating on the future of the Cuban economy, I shall focus
my discussion on two issues: first, how to lead the country towards a market economy
and second, how to ensure the operation of a market economy in a democracy. Both
conditions are necessary to achieve Cuba’s growth and development. Regarding the
second aspect, I shall follow the same idea set forth by Betancourt and Seiglie (1998),
i.e., that economic development must be seen as “a process or set of processes through
which a society systematically increases the standard of living of the majority of its
people”.
4
I agree with this approach of “a standard of living determined by the income of its
citizens”, which some consider rather limited but which is, in fact, rather practical. This
approach has been widely used by economists all over the world and by the majority of
those involved in economic issues. Moreover, this approach suffices for the purpose of
this analysis. Indeed, a more comprehensive approach would unnecessarily complicate
this paper. Also, this material definition of development, which does not underestimate
the other numerous dimensions of human development, should be considered a priority if
we take into consideration the conditions of great material poverty in which the vast
majority of the Cuban population has lived during the last forty years or more. I believe
it is safe to assume that an astonishing majority of these people would agree to applying
this approach of development as a main guideline for a reform strategy and the
subsequent economic policies of the governments that will succeed the Castro era.
In his research of the nature of the social organization of economic activity, Knight
(1933) emphasized that the degree of complexity of a modern economy can become so
high that it can be compared, as has often been done, to a living being or organism. The
analogy extends to the gradual way characterizing the development of all biological
organisms, particularly extremely complex ones. But economic systems do not evolve at
high speeds, and they certainly do not emerge by spontaneous generation. The changes
experienced by most dynamic economies cannot be seen overnight. History shows that
all economic systems grow and develop hand in hand with the societies surrounding them
and require long periods of maturation. The changes undergone can only be seen and
measured at certain time intervals. Even companies, as well as other kinds of economic
organizations, although their individual development occurs more rapidly than that of
societies, also need specific periods of gestation and maturation; they too, rarely develop
overnight. The evolution of economic systems, as shown by history, is generally based on
a cluster of economic organizations of increasing complexity resulting from the decisions
of multiple economic factors, each following its own private interests.3
Economic development has at least a quantitative dimension in terms of growth and a
qualitative one in terms of organizational and institutional structures. In fact, economic
development, according to Hirschman (1958), may be viewed as an increase in the
organic and institutional complexity of the economy expressed through an increase in the
diversity of forward and backward linkages, as well as through an ongoing process of
fragmentation, evidenced by the division and subdivision of work processes within
companies or through the creation of new companies, expressed by Çambel (1993) as
fractals. These considerations allow us to perceive the development process of an
economy as an evolutionary process of a network of organizations of increasing
complexity.4 Socialism tried to accelerate this development by increasing its efficiency
3
We must emphasize the complex conditions of an economy since many people still underestimate this
fact and still believe that an economy must be controlled in order to satisfy the needs of a nation.
4
The concept of organic and institutional network implies an economic model similar to that of a neural
network, which interconnects its companies and other organizations subject to the restrictions and rules
represented by institutions. This network represents the productive memory of society. The concept of
complexity applied here is to the same as the one derived from the theory of chaos and has been applied
here to the nature of the organic network translated as forms of organizational and functional complexity,
5
and introducing centralized planning and government-owned companies, but miserably
failed because it was unable to centrally operate a system of such complexity, let alone
one of growing complexity. Mises (1920) was one of the first to identify this problem;
but the implementation of a socialist economy is a political decision where economic
criteria are not taken into account. On the other hand, we must not forget that an increase
in the complexity of an economy does not always translate into its development. As Soto
(1987) has well documented, the development of a bureaucracy is a means to increase
complexity, which, in fact, is merely an obstacle to economic development.
These considerations imply that, even though it may be possible and advisable to apply
what has been defined as “shock therapy” as opposed to a so-called “gradual” approach,
when it comes to economic reform policies, development as such never comes
instantaneously, only gradually. At the same time, this condition implies that the
economic reform policies, if they are to be successful, must not only be adequate, but
ought to be applied systematically, throughout their implementation and consolidation
process. When it comes to the implementation of those policies, the instability and
uncertainties that are inherent in an insecure government team, or even any constant
changes in the formulation of such policies, is a sure guarantee for failure. This
consideration is paramount because it is to be expected that the people in Cuba, along
with the future government responsible for the reform process, will be very eager to show
rapid proofs of economic development in response to all those years of stagnation and
recession. However, the truth is that economic miracles do not exist and lack of patience
can be the biggest foe for a real recovery operation of a domestic economy.
3.
Socialism’s Institutional Reduction
In all economies where it is implemented, socialism typically reduces the complexity of
government’s institutions. Cuba followed the classical process of introducing numerous
restrictions on various fronts simultaneously. On the one hand, through the process of
expropriation, it managed to make all expressions of Cuba’s financial sector disappear,
both from companies’ organic viewpoint and that of institutions, such as private property
and credit. It also drastically restricted commercial sector activity, including retail and
wholesale, together with all forms of transportation and related services. The service
sector in itself was also rigorously reduced: activities such as accounting, law,
advertisement and others totally vanished or became state-controlled.5 The whole
according to Rescher’s (1998), nomenclature. You may also refer to Day (1994) and Simpson (1990). Its
application to this paper is motivated by the need to show that, in highly complex systems, both biological
and economic, there are natural evolutionary processes that cannot be externally replicated by a state
bureaucracy. Socialist planning, even though it tried to replicate the process of creating and developing
linkages among companies, was only able to create a rough model of the systems created in free
economies. Often, during the development of market economies and once submitted to a privatization
process, these socialist-born companies had to be abandoned.
5
In theory, the disappearance of these sectors was based on the Marxist definition which states that surplus
value is only generated in “areas of material production”, since other sectors are consumers of surplus value
and, consequently, parasites or part of the system of “exploitation of man by man” which should be
completely abolished. In the Cuban case, there are enough reasons to assert that the reasons were more
6
process was facilitated by the fact that there was no collective action on behalf of the
owners and the population to effectively defend themselves and oppose this process.
Instead, many decided to leave the country in the hope that the United States would
initiate military intervention, reverse the process, and bring the country back to its
original state. It is also interesting to note that many citizens, in lieu of taking collective
action to protect their private and public interests, seemed to rely instead on the action of
a foreign nation as free riders.6
The consolidation or conglomeration of companies eliminated competition, thereby
reducing the organic complexity of the economy through the creation of state
monopolies. In theory, eliminating the redundancy represented by competition between
companies would increase the economy’s global efficiency since it would reduce
transaction costs.7 However, the government did not realize that its inefficiency in
processing the huge amounts of information necessary to replace a market system by one
of centralized planning would only increase transaction costs even more. At the same
time, the elimination of market mechanisms would lead to price liquidations that are part
of the signal system needed by any economy to efficiently allocate its resources.
Transaction costs became so high that existing resources were not enough to keep
production, consumption and investment at its traditional levels. This led to the
introduction in the Cuban economy of a rationing system, even though motivations for
this initiative were also largely political (i.e. controlling the population and its
whereabouts). Furthermore, to allow the economy to run at a minimal level, the country
had to start relying on subsidies from the Soviet Union.
After undergoing nationalization and socialization, companies also witnessed their
internal complexity decrease. This way, the newly state-controlled company would not
only lose the benefits associated with private ownership (i.e., independence, management
ship, investment, competitiveness) but also its autonomy in managing the resources
needed for running marketing, financial administration and technological development
functions, among others, which are all factors defining corporate efficiency. When
companies start to lose their ability to manage themselves independently, they become
simultaneously unable to hire the most efficient employees: for the latter (including
entrepreneurs and owners) it means they are no longer free to offer their services to those
companies that are most attractive to them. In a socialized company, complexity is
limited to a workshop, or production system, characterized by minimal power of decision
in terms of allocating resources to production, and a total loss of ability in fixing its
product prices, as well as in its response to price signals, its decisions on production and
inventory levels not to mention its capacity to function under criteria of efficiency other
political than anything else, namely, releasing human resources allocated to production and reassigning
these to jobs in areas of mass control, security and armed forces.
6
This concept is used to refer to citizens who do not pay for a public good consumption of which, by
definition, is not excludable, such as public street lighting or national security, but who benefit from
services that are somehow financed by contributions from other citizens, generally through taxes or other
forms of collective action.
7
Transactions between economic agents are not free but do involve consumption of resources. For
example, the act of buying and selling may require the buyer to go to the market (or stand in line) and the
seller to spend money in advertising (or hold inventories).
7
than the old concept of profit. It is interesting to emphasize that while the company
becomes more “socialized” in terms of property, it simultaneously becomes “less social”
as its production can no longer satisfy the needs of society.
With the introduction of rationing, consumers suffer a severe reduction of their
sovereignty. Most free-market activities are declared illegal and those that survive
become clandestine and thus, criminal. Consumers are no longer free to choose the
quantity and variety of the food products or goods they will consume. Variety in itself
becomes scarce: durable consumer goods, mainly household appliances, disappear for
several years, and with it, all economic options to buy or build housing, automobiles of
any sort and the freedom to travel abroad. On top of this, city and intra-city transportation
suffer drastic restrictions. Concomitantly, it no longer makes sense to save money, not
only because incomes are barely enough to buy the basic necessities available through the
rationing booklet and the black market, but simply because there is nothing left to buy
with these savings. At the same time, all forms of consumer credit vanish.
4.
Evolution since the Nineties
The economic crisis suffered by Cuba after its loss of substantial Soviet subsidies forced
the government to adopt a series of adjustment measures that bring about new changes in
the institutional and organic network of the Cuban economy thereby increasing its
complexity. These measures translate into lifting a few restrictions on a small group of
selected economic activities. In fact these measures, which are not designed to introduce
substantial economic reforms, do result in an increase of the complexity of the country’s
economic organization. To a certain extent, the lifting of these restrictions did increase
the level of freedom of certain agents and allowed the government to stand up to a crisis
situation while at the same time saving it from potential social and political upheaval.
From a macroeconomic standpoint and, in order to achieve a balance between
government income and expenses, another measure consisted of laying-off workers
whose factories were paralyzed due to a lack of supplies. This step was complemented by
lifting restrictions on self-employment in the hope that this step would create the
employment opportunities that the government was no longer able to guarantee its
citizens, no matter how unproductive. From a microeconomic standpoint, one of the
measures adopted by the government was the re-emergence of limited expressions of
private property or “finger” capitalism (since it depends on Castro’s approval), although
this process had already begun during the eighties without any measurable impact on the
country’s institutional plot. Although this measure applies mainly to foreign owners, it
increases the options of many economic agents in the country, enabling the companies
that benefit from this change to operate with a certain level of freedom that is unheard of
in Cuba since the nationalizations that took place in 1960.
Other steps include the careful opening of farmer’s markets, although not at the same
levels experienced during the mid-eighties (before the process was halted by the so-called
“Rectification Process”, Mesa-Lago, pages 264-288), the decriminalization of holding
and circulation of US dollars, the legalization of self-employment, the promotion of
international tourism, tolerance of prostitution mainly aimed at the tourist industry,
8
greater autonomy for state-controlled companies through the abolition of centralized
planning, and finally, terms granted to Cubans for receiving dollars from abroad.
Paradoxically, the loss of Soviet subsidies forced the Cuban government to adopt
extremely harsh adjustment measures, similar to the ones recommended by the
International Monetary Fund in similar crisis situations and which have been so criticized
by the Cuban government itself. What is most interesting in this case is that the
adjustment measures had to be implemented without the help of a soothing short-term
IMF loan. Cuba was able to sail through the crisis thanks to a bridge, or by-pass, created
by a system of monetary dualism that emerged as a result of a partially dollar-run
economy, as analyzed by Sanguinetty (1993, 1994).
It is interesting to observe that the different levels of economic freedom that were
achieved were the combined result of government’s lifting of specific restrictions
followed by an immediate response of economic agents, either Cuban or foreign, who
modified their actions accordingly. This phenomenon shows that, when the time is right
for opening up the Cuban economy even further —which should not be done gradually,
but through what many refer to as “shock therapy”— the country’s economy will already
have acquired a certain response capacity. This is probably one of the most important
lessons learned in the nineties concerning the great many mysteries surrounding Cuban
society when it comes to its mindset to undertake a market economy. Those long years of
extreme deprivation have accumulated wishes and demands that may become the main
trigger for economic recovery. When it comes to economic stimuli, we cannot
overemphasize the importance of the response capacity of a population, but this factor
should not be ignored by those who, when designing special economic restoration
projects, fall back into obsolete paternalistic and government-controlled schemes.
However, we must ask ourselves the following: What will be the extent or limitation of a
recovery solely based on lifting restrictions without any real efforts to establish new legal
frameworks, significant constitutional changes, comprehensive institutional reforms or
privatization programs to settle all cases of expropriation and significantly decrease or
even eliminate state-owned companies? The answer to this question does not depend on
the government’s ability to manage the economy but on its ability to stimulate markets as
well as all other factors necessary for their flexible and efficient operation.
5.
Experiences with Market-Oriented Economies
Even though, during specific time periods, the development undergone by some
companies is due to the leadership of greatly talented and energetic individuals, one
cannot assume that the will of one single person or small group of individuals can build
an entire economy. Even socialist experiments on economic “engineering”, which led to
the establishment of centralized planning systems, were unable to reproduce the
efficiency of modern economic systems based on private property and free markets,
despite the fact they were motivated by extremely powerful individuals such as Lenin,
Stalin, Mao Tse-tung and Castro. Cuba brought along its own experiences, under the
blanket of socialism, taking initiatives to accelerate industrialization at the beginnings of
9
the revolution under the aegis of Che Guevara, but they failed, as analyzed by
Sanguinetty (1999). Nonetheless, these efforts were surreptitiously guided by merely
reproducing the economic structures generated by other economies, since socialistic
forms of economic organization were never able to generate a dynamic of their own. It
must be stressed that the power of those great “social engineers” was in fact more
reductionist or destructive than creative and constructive, if we observe the different
stages of evolution of the organic complexity of their respective societies.
Thanks to the level of knowledge and the variety of experiences we now have regarding
market economies, we are now fully aware of the steps that need to be taken in order for
an economy to reach strong levels of growth and overall development. This is evidenced
by the overall agreement that exists among economic analysts when it comes to the
objectives of institutional and political reforms needed to guide the transition process of
socialist or highly state-controlled economies towards market economies. This apparent
universality when it comes to economic knowledge is, however, limited on two fronts:
not only do the experts not necessarily agree on the paths to follow, their knowledge is
not always shared by all strata of the population.
The experts only agree on the objectives of the reforms as such, not on the paths that
must be followed to achieve them. These paths are determined by economic and political
factors as well as some of a different nature. In fact, there seem to be multiple rational
strategies to set up reforms; also, depending on individual characteristics, what may be
considered rational in one country may not be considered so in another. There may exist
multiple strategies, for instance, to restore private property rights, mainly concerning the
issue of returning property that was confiscated during the early establishment of the
socialist regime. Other possible areas of disagreement include the type of currency
system to be adopted during the transition period. In Cuba’s case, the issue is whether or
not to continue with an economy partially run in dollars or whether to restore the peso as
the sole currency.
On the other hand, experts’ agreement on the objectives of reform cannot be
automatically extended to other members of societies under transition. Neither the
benefits nor the properties of a market-oriented economy are necessarily accepted or
understood by a high enough proportion of citizens to guarantee their implementation. In
many instances, this fact may severely limit the possibility of a transition to move
forward. An interesting case is that of Chile in the sixties, under the dictatorship of
Pinochet. At that time, military government members, distrusted most of the steps that
were recommended by the then scorned Chicago Boys8. The latter were extremely
successful in convincing the decision makers of that time about the benefits of the
suggested reforms.
But it should be emphasized that the rulers in charge, even though they did not harbor
socialistic ideas of any kind, distrusted the market as the core of the economic activity’s
organization. The military in Chile, and also in Argentina, Brazil and Peru, still believed
8
Refer to Mesa-Lago (2000), 34.
10
in the leviathan state, as the main, or at least the essential, engine or instrument to guide
and bring about economic development.
However, the education process of the Chilean dictator and its adjutants proved to be
much less difficult than educating an entire legislative body, that is, if the latter had
existed had there been democratic elections. There are however no reasons to hope, nor is
it my recommendation, that Cuba repeat this particular process of establishing a market
economy. But then, how do we establish a market economy in a democratic political
context? How can we avoid the long impasse of countries like Russia, Ukraine,
Dominican Republic, Brazil, Guatemala or Ecuador whose legislative bodies or
constitutional frameworks do not allow or seem incapable of defining or implementing
measures that would improve their chances of developing?
Despite all these questions, the simple lack of understanding of the benefits and operation
of a market economy is not the only source opposing reforms. Other sources include
specific coalitions or interest groups that may perceive these reforms as a significant risk
of loss, either financial or power-related, or both. One good example is presented by
Gaidar (1996) who mentions the resistance by kolkhoz and sovkhoz leaders to reforms,
which would mean the end of their privileges. Sometimes, as witnessed in Russia, some
of these coalitions emerge because of initial errors that occurred during the transition
process itself. Also, as emphasized by Shleifer y Treisman (2000), 177-181, the power of
these coalitions can become so strong, that lack of understanding by other factions of the
population ceases to be the main obstacle to the reform process.
In Cuba, heads of government-owned companies or party leaders who survive the initial
political changes may incarnate these opposing forces. There are also dissident political
organizations that brandish several agendas, often of socialist nature, based on a deep
distrust and lack of understanding of a market economy. The propaganda of its strongest
enemies, still pushing for a controlled economy, deeply impacts the intentions of goodwilled individuals of social-democratic or social-Christian orientation. Also, it is to be
expected that they will represent a strong obstacle source to the establishment of a market
economy, an aggressive growth policy and, thus, an economic recovery for Cuba’s
economy. In fact, we should not be surprised if a Cuban transition towards a democratic
regime turns out to be far easier than a transition towards a market economy.
The question is whether Cuba, once it undertakes a transition towards a market economy,
will necessarily have to endure the same problems as those suffered by other socialist
countries, or whether it will have political options that will allow or, at least, increase its
chances of a more adequate transition towards its interests. Further on in this analysis we
shall examine the issue of feasibility of some form of collective action before a transition
is possible, taking into account Cuba’s current restrictions. These restrictions might also
suggest the feasibility of some kind of possible action to originate outside Cuba, whether
by groups of exiled Cubans, interested governments or international organizations.
11
Establishing a Market Economy in Cuba9
6.
As I mentioned previously, what must be done to establish a market economy in Cuba
has been rather well defined and understood. Also, most economic experts agree on the
issue. Where they tend to disagree is on how to set it up and make it work, since
conditions, especially political ones, are different in every country. Also, what might be a
good strategy in one place might turn out to be wrong in another. What must be
emphasized however is that those measures that may be quickly and drastically adopted
should not be delayed. Indeed, a gradual implementation of measures such as opening-up
markets makes no sense at all and would only delay the economy’s development. Other
steps such as, for instance, the creation of a new legal system, have aspects that can be
put into practice immediately with measures such as repealing regulations criminalizing
free trade and free contracting, while other steps such as training, recruiting and
appointing competent judges in specialized areas and in sufficient numbers will,
however, require more time. What we must always keep in mind is that the quicker we
set up the mechanisms for a market economy, the greater the chances for the economy to
grow and put an end to the huge economic problems accumulated by the Cuban
population during four decades of neglect and wasteful spending. Following is a list of
the most important steps that must be followed in Cuba’s case:
•
•
•
•
•
•
•
•
•
•
Legalize free enterprise, lift all restrictions on domestic and international trade
Restore private property rights
Facilitate direct investments by Cuban nationals and foreigners
Redefine the monetary system
Design and implement a fiscal reform
Redefine the role of the state and implement organizational development
Prepare the ground for the development of a new constitution and legal system
Create a financial sector
Implement and education reform
Reform the health care and social security systems
The definition of all these measures is quite simple. One of the main obstacles to their
implementation, as we have already discussed, would be a potential disagreement among
the government team members or between the executive and legislative powers. The lack
of understanding by a large portion of the population, combined with a potential lack of
confidence in the government team might be another factor. Ineffective handling of these
reforms (in the sense of management) by the governing team could be a third issue.
Economists and other advisors eagerly recommend these measures but they are not
always aware of how difficult it is to implement them, particularly when it comes to
selecting who shall be responsible for this task and for running the subsequent new
systems. Many reform programs fail because they are not managed by the right people.
9
We have included this section to provide a more comprehensive content to this paper, which, as I
mentioned previously, was written for the purpose of circulation in Cuba. Those who are familiar with this
issue may go directly to the next section without losing continuity.
12
However, after so many years of government inefficiency, the reforms would be so
critical for Cuba that importing people from abroad for a period of time could be
considered in order to bring about the changes and train enough local personnel.
It is important to understand that these measures must be implemented more or less
simultaneously, as one complements the other, a fact that complicates the issue of
management and leadership even more. For example, the fact of easing investments will
not attract capital if there is no clear definition of a fiscal framework, nor if companies
cannot export their profits, or if there are too many obstacles to import raw materials and
repair parts. Without a tax reform able to generate the revenues necessary to respond to
the government’s needs, the consolidation of the rule of law and the modernization of a
system of administration of justice will not go very far. The managerial ability of the
government team in charge of the transition and of setting up a macroeconomic policy
must be extremely high precisely because these reforms must all be coordinated and,
also, because this coordination effort should be sustained for a long period of time.
Two aspects that were seriously underestimated during other transitions observed since
the fall of the Berlin Wall and the disappearance of the Soviet Union concern the
organizational and managerial aspects of these reforms. This, consequently jeopardizes
the entire process or, at best, could seriously limit the impact and efficiency of the
changes. For instance, the implementation of a legal system should not be restricted to
new legal regulations, but should include training of all kinds of professionals, such as
judges, defense lawyers and public prosecutors as well as technical personnel specialized
in certain areas that were almost non-existent in Cuba during the socialist regime. Other
than training, these individuals should acquire substantial practice by working in the field
for several years, before these systems can be considered totally operational and efficient.
In this same area of justice administration, universities will have a role to play for many
years while other educational centers must train intermediate level technical personnel in
the same field, such as court administrators, paralegals, registrars or recorders of deeds,
etc.
7.
Olson’s Analysis
Olson’s theories on collective action may be helpful to predict a few possible scenarios
for Cuba after the fall of Castro and to determine the conditions that might contribute to
the viability of setting-up a market economy and a democracy. As we have seen, Cuba’s
problem cannot be solved by simply defining what steps need to be taken in order to
build a market-oriented economy and a democracy, as we have briefly done here, but by
finding a method or strategy that will transform these objectives in a reality. More
specifically: what must we do to bring those who believe in a democracy and a market
economy to power? Once power is in their hands, what factors will help these new
leaders agree on the adequate program to implement these required changes?
To address this issue, we shall first analyze what happened in those countries that were
able to free themselves from the restrictions of socialism from an Olsonian perspective.
Let us come back to Olson’s two questions raised at the beginning of this paper, namely:
13
“Why was economic performance so much better, especially in relation to expectations,
after the defeat of fascism than after the collapse of communism?” “Why do the formerly
communist countries suffer so much from official corruption and organized crime?”
I believe the answer to Olson’s first question is much easier than the second. The answer,
indeed, lies in each society’s level of relative complexity. At the end of WWII and after
fascism came to an end, the economies of ex-fascist countries, unlike those of socialist
countries, did not experience a reduction of their organic and institutional complexity;
this explains why the former were able to recover much better that the latter. Despite the
destruction suffered by these societies during WWII, their productive memory, as well as
their wealth of human capital, remained practically intact. Socialist economies, on the
other hand, did not have a productive memory before their institutional reduction. Also, a
significant part of that memory which did prevail had to be “forgotten” as it represented
inferior forms of production. In some strange way, the bombs caused less destruction
than socialism. Trying to rebuild a socialist economy makes no sense since, typically,
most of its companies are created under a distorted system of relative prices and are only
able to survive under a totalitarian system where political decisions always come before
the economic ones. After the disintegration of the socialist block, the economic systems
of its countries had to be largely reinvented, something that could not be done through
shock therapy. Consequently, while the Marshall Plan was viable to bring about Europe’s
reconstruction, its influence on a transition from a socialist economy to a market system
is not. In this case, the issue is not so much rebuilding what existed before, but creating
new economic systems.
The second question is more difficult to answer. There is a great difference between exsocialist and ex-fascist countries as far as the role played by corruption and crime. In the
first group of countries, socialist governments disappeared along with their political
systems leaving property rights “in limbo”, or very close to anarchy. This led to a
Hobbesian situation in which predatory activity started filling the void created by a lack
of authority together with the absence of a real strategic reform plan. This phenomenon,
referred to as the piñata in the Nicaraguan case, may repeat itself in Cuba, even if it
involves properties subject to claims by their legal owners. In other words, the
institutional weightlessness suddenly faced by countries experiencing a collapse of the
totalitarian authority responsible for keeping order leads to uncontrolled liberties that are
exploited by the most entrepreneurial and less ethically inclined elements of those
societies. However, if expropriated property is returned rather quickly at the early stages
of the revolution, it could curb the plundering of public property.
In a socialist society, power sources stem from the political not the economic apparatus.
This explains why the field of politics usually attracts a socialist society’s most ambitious
and entrepreneurial members, particularly those with lesser ethical atavisms against the
new order. Although many believe, in harmony with the socialist credo, that a political
system is ruled by leaders who are honestly motivated by the principles of socialism and
communism, it is in fact more realistic to follow the more classic assumption that the
behavior of these citizens, including participants at lower levels, is motivated by personal
ambition and greed. This suggestion does not contradict the fact that many do believe in
14
socialism at various degrees. What we are suggesting here is that, generally, personal
interest tends to weigh more than its assigned value.
In a socialist regime, the accumulation of wealth does not express itself through bank
accounts or property (except for maybe a few, including the highest-ranking leaders) but
through accumulated political “wealth”. This political wealth takes the form of
recognized merits that are based on loyalty as well as other activities defined as
meritorious. Following Marxist principles, monetary wealth, which is seen as a
manifestation of greed, is reduced and replaced by a form of wealth that is less tangible
and definitely much less efficient from an economic viewpoint.10
Consequently, through this unsettling and perhaps surreal concept of wealth we can see
how, for some citizens, sources of wealth under socialism come from the political system,
not the economic system. Nonetheless, opportunities for growth are limited for two
reasons. First, as a means to achieve personal wealth, the political system is less efficient
than the economic one. Second, the political system offers much less opportunities and
therefore is not as fair. The most entrepreneurial individuals, with the exception of those
upholding incompatible ethical values (negative altruism?), learn to play the political
game and accumulate merits by trading loyalty. The ambition of the capitalist is replaced
by that of the opportunist, or arriviste, who is but an entrepreneur of a different kind.
Despite the rhetoric of heroism and altruism, this phenomenon repeats itself under all
forms of socialism and conveys the principle of personal interest (although it is not
exclusive), as the universal force which drives human behavior. The lucrative enterprise
lies in the political system, which enables a handful of people to attain some form of
economic wealth, although primitive considering the prevailing economic scarcity of
such a system. Whilst the Olsonian autocrat disappears along with the collapse of the
regime, the balance of power among other political “entrepreneurs” may remain in a state
of suspension or weightlessness. Even if we assume, like Olson, that the new balance of
power shall not be determined by a culture of democracy or the presence of altruistic
leaders but by the selfish and opportunistic behavior of the most powerful two-faced
individuals, then, unless we have a system of established rules, there is a risk of
predominant and prevailing corruption. In fact, I do not believe the term corruption as
used by Olson is quite appropriate since a legal system might not be adequately
established. At any rate, socialist regimes are and have always been known for violating
10
It is interesting to observe that in the Cuban case, the Olsonian metaphor of the “stationary bandit” is not
directly applicable for two reasons. The first being that Castro’s preferences do not match those of the
citizens he controls. In Olson’s terms, Castro has no encompassing interest. His agenda is of a messianic
nature, rather than one of consumption, as seems to have been the case of former dictator Batista. Hence,
many prefer Batista to Castro or any other despotic individual with a more mundane agenda. The second
reason is that Olson’s stationary bandit did not have Castro’s power to expropriate his victims of more than
what would be necessary while still optimizing the level of consumption and wealth. Castro has in fact
behaved as an “errant bandit” although Soviet subsidies transformed him into a stationary one. It is
interesting to see that, after the collapse of the Soviet Union, Castro’s behavior has had to come closer to
that of the stationary bandit because the “budget” restrictions resulting form the halt on subsidies make his
preferences look more like those of the common Cuban citizen and his interests more encompassing than
ever. Ironically, Castro, forced to adjust the Cuban economy, must ultimately restrict his behavior and
adopt what Kornai (1980) referred to as a hard budget constraint.
15
their own rules, and their citizens, along with the system, have always considered this
behavior to be normal. In other words, corruption is a behavior that openly mocks
existing rules and tries to ignore (or bribe) the organizations in charge of their
compliance. But when neither law nor authority is respected, what would otherwise be
defined as corruption becomes something closer to anarchy, a kind of repressed or
restricted anarchy.
8.
The Cuban Transition
One aspect regarding the issue of viability which concerns us is whether Cuba, in its
transition towards a market economy, will need to endure the same problems as other
socialist countries or whether it will benefit from political options that will enable, or at
least increase, its probabilities towards a transition that suits its citizens’ interests. In
other words, there is no way to determine whether a transition towards a market economy
and a democracy will come naturally after Castro’s regime comes to an end. In fact,
before a market economy sees the light in Cuba, it is more likely some form of
democracy will emerge, since the first option is much more complex. A minimal form of
democracy is indeed an option, from a simple electoral viewpoint, and this solution could
be negotiated among the various political factions that will probably emerge in a postCastro Cuba. This phenomenon is not unique. The case of the Dominican Republic
comes close to the Cuban situation. It has taken the country forty years, since the death of
Trujillo to be precise, to arrive at a political system that elects its civil servants through a
direct universal suffrage, although, after each electoral period, many still wonder how
democratic this political system really is. For an analysis of this process, please refer to
Espinal (2001).
Many people believe that once Castro or his regime are gone, Cuba will inexorably
evolve towards a democracy and a market economy and that, almost automatically, the
economy existing before the advent of socialism will be restored. Implicitly, these
expectations sometimes include the idea that all semblance of the current government
will disappear and be peacefully and nicely replaced by a reform team. Others believe or
hope that Castro’s team should be replaced in a violent manner. Although we cannot rule
out the possibility that the first government succeeding Castro will undertake the reforms
outlined here as the most representative of the Cuban public interest, the first lesson on
collective action that Olson (1965) teaches us is that societies generally do not voluntarily
or automatically act in favor of their collective interests. Only small groups are capable of
voluntarily reaching agreements, whereas larger groups, such as entire nations, need
coercion to achieve some sort of stable organization or a system of incentives in order for
its citizens to behave, paradoxically, in accordance with their collective interests. Olson
goes one step further in his book Power and Prosperity, published posthumously, when
he states that: “no one has ever seen a large society able to achieve peaceful
organization… through voluntary collective action.” In other words, if Castro were to be
defeated by means of violence (an initiative that would probably be led by a strong hand),
it would be quite possible that the old autocrat would be replaced with a new one. After
all, this is exactly what Castro did with Batista and is what generally occurs in many
other countries.
16
Barring the possibility of a miracle, it is not very realistic to hope that the voluntary
collective action of 12 million Cubans or so will lead the country to a market economy or
a democracy as if guided by some force of gravity or invisible hand. In fact, democracy
came to Cuba from the outside and by violent action; Cuban society was not able to
preserve it. Nothing suggests that today’s society is better prepared than previous
generations to build a democratic system. Cuba’s economy before 1959, dominated by
mixed market characteristics, was the result of a long process, that excluded state control,
which started with the colonization of the island itself. It was easy to destroy this system;
recovering it, however, will be more difficult.
Keeping Cuba’s present-day conditions in mind, the issue then is to define what type of
coercive collective action or particular incentives can be achieved and are
recommendable and how they could be stimulated before society adopts economic and
political structures that go against the common good. This includes the possibility of
some form of action that would originate outside Cuba, whether by groups of exiled
Cubans or by interested governments or even international organizations. The issue here
is whether the ideas or preferences of insular Cubans in matters of politics or public
goods match those of Cuban exiles considering coming back. Under present conditions,
one is not even sure if there exists any form of agreement or disagreement at all due to
the fact that communication between representatives of both groups is very limited or
simply non-existent. However, it wouldn’t be unrealistic to assume that the probability of
disagreement is stronger than that of agreement, especially on issues concerning the
restitution and compensation of expropriated property and claims of other nature.
Although these issues are an important factor to be considered as a prerequisite to the
establishment of a free market economy, they could also be included in a simpler agenda
which would not jeopardize the economy.
Another source of strong disagreement, which often expresses itself in Cuban circles,
concerns the balance of preference between justice and reconciliation. An undetermined
number of Cuban people, both living in exile and those on the island, believe that, before
undertaking any political and economic reform, some form of judicial action against the
members of the socialist regime responsible for committing outrages should be
undertaken, particularly those who were involved in executions, imprisonment or other
abuses of authority. Another undetermined number of Cubans would rather wipe the slate
clean and forget about the whole issue. One may assume opinions among these groups
are quite eclectic and vary considerably on the scale of vehemence.
Needless to say, these attitudes do add an element of uncertainty when it comes to
formulating possible scenarios for Cuba’s future; however, although they complicate the
analysis and the planning and study of its corresponding scenarios, we cannot ignore
them. In this context, we must stress that this existing uncertainty could agglutinate the
powers of those who favor Cuba’s current regime and who know that their separation,
once Castro is gone, carries a very high price. We should not forget either that Cubans
excluded from this circle of power have systematically been faced with repression when
trying to establish any type of association; i.e., Castro’s instrument of choice to
17
significantly raise transaction costs and thus make almost any attempt for political
alliance through Coasian11 negotiation impossible. This phenomenon, which seems
totally incomprehensible for those Cubans who embraced exile before living through this
experience, explains why there are so very few movements of rebellion or serious
opposition efforts against Castro’s authority.
The government exploits this lack of cohesion among Cuban citizens—including people
in government ranks— and also deepens it by exerting absolute control over all sources
of information, thereby also affecting their ability for collective action in relation to the
definition of public interests. The divisions to be expected in the variety of attitudes,
expectations or preferences of the Cuban people regarding public policies, specifically
decisions that contribute to creating public goods that make up collective interest, are
rendered more complex by the phenomenon which Olson defines as the common
citizen’s “rational ignorance”. This concept refers to the fact that in all societies there is
no incentives for members to be experts on matters of public policy. In concrete terms,
this refers to citizens’ logical ignorance when it comes to defining the concept of a
market economy and how to set it up. We also believe that in present-day Cuba this
ignorance is exacerbated by its isolation in terms of information and education, as we
have previously mentioned.
Despite its many similarities, the Cuban case stands apart from the typical transition cases
of most ex-socialist countries for several reasons. The first being the politically weak and
poor situation of government opposition, whether on the island or outside. This situation
does not allow us to foresee a safe place for society to ensconce itself once its current
leaders are gone. In other words, unless there are some hidden forces within the current
Cuban society that are able to take the reins of power when the time comes, anarchy and
not corruption will prevail. If we accept these principles as valid, then we can deduct that
the only way to establish the common goods i.e., “market economy” and “democracy”,
after Castro’s disappearance is through coercive action which would flow from one of the
following scenarios: a) Castro’s team itself decides to undertake the necessary reforms, b)
Castro’s team is replaced after an internal coup d’état, c) Castro’s team is replaced after
the intervention of some external power of a reformist nature. The probability of this
third scenario is ruled out because of its unlikelihood. Indeed, there is little indication that
such an initiative could be organized12. The likelihood of scenarios a) and b) is stronger,
but they do not necessarily guarantee the desirable reform program. Indeed, Castro may
be replaced by his current subordinates and it is not known if these individuals will be
able to agree on a coherent reform plan, even though they have the right incentives, as we
mentioned previously. There may be a genuine desire to take Cuba out of its current
economic impasse, but this process might be obstructed by the diversity and
11
A Coasian negotiation (named after Ronald Coase, winner of the economy Nobel Prize and creator of
this concept) is one in which two parties in a potential situation of conflict reach an agreement by means of
a payment or concession from one party to the other so that the benefit for the payer becomes higher than
the cost of the transaction itself. For example, it might be beneficial for a farmer whose crops are being
destroyed by his neighbor’s cows to pay the latter in order to keep the cows away from his land.
12
Some believe this power may be the United States Armed Forces. Aside from the fact that such a
scenario is highly undesirable, I believe its likelihood is rather remote, unless bloody anarchy explodes in
Cuba and no internal authority is able to control the situation.
18
incompatibility of everyone’s agendas. Under these conditions, chances for what Olson
calls “the autonomous emergence of democracy” would become slimmer, whereas
chances for the advent of another autocrat would increase. However, it seems highly
unlikely that an autocrat rising from the ashes of Castro’s regime will pursue Castro’s
messianic agenda. He will probably be closer to Olson’s model of the stationary bandit
and try to consolidate his power by undertaking highly popular economic reforms.
And so, we come to our first likely scenario: the possibility of a transition towards a
market economy before one towards democracy. There might be two obstacles to this
process. The first being internal opposition if it is able to get organized and express its
discontent through the only means it has available, namely the streets of Cuba’s cities.
The second obstacle may lie in the United States, specifically the provisions of the Helms
Burton Law, that demand the country to hold “free elections” before it considers
normalizing economic relations between both countries. Needless to say, if the current
trade restrictions between the United States and Cuba continue as a consequence of the
existing embargo, all economic reforms will be seriously jeopardized. Under this
scenario, democracy might see the light later on, because of external pressures, namely
those coming from the United States. Of course, given Cuba’s present-day conditions, its
absence of a civil society and political parties, not to mention the time required to put all
this into place (including developing a new constitutional framework, etc.), an
impoverished democracy of this nature would turn out to be extremely weak and, in the
long run, would suffer deep crises through a long consolidation process as was the case of
the Dominican Republic, previously mentioned.
On the other hand, and following Olson, the ideal solution for a democracy in Cuba
might be, once Castro is gone, a balance of power shared between “a small group of
leaders, groups or families” (page 31), so that none of its members has enough power to
prevail over the others or venture a coup d’état. Although this form of government may
turn out to be too fragile, we assume its members are rational individuals whose common
interest is keeping their positions within Cuban society, including their own survival.
Therefore, it is reasonable to assume that these individuals will try adopting a collective
strategy in sync with these objectives, which brings us to the second possible scenario:
the possibility that the initial leaders and agents of a transition towards a democracy and a
market economy belong to the high-ranking officials of Cuba’s present-day government.
One must consider the serious moral dilemma created by this situation for Cubans who
are against the current regime. Insofar as it is desirable, on the one hand, that judicial
action be taken, as suggested by some, against those members of Castro’s government
who abused power and, on the other, present-day government members might think these
wishes will become a reality, and, acting rationally, they should follow a strategy of
collective action which might contribute to Cuba’s transition towards a democracy and a
market economy. We can presume this is the outcome desired by most Cubans on the
island and by some who live abroad, including those who clamor for judicial action,
although this last alternative seems to contradict the general objective. This means that
the clamor for justice will generate the forces that can prevent a normal life for citizens
after Castro but which, at the same time, can favor a rapid return to such normalcy.
19
It is important to stress that, assuming the surviving members of Cuba’s ex-Castro regime
act rationally, it will make no sense for them to support a socialist regime without the
presence of its leader. Otherwise, serious internal pressures may arise and their
magnitude may be so strong that without the presence of their former leader they may not
be able to face them. Moreover, the longer this situation extends, the more we assume
these pressures will build up. It follows that a miscalculation by Castro’s surviving
government officials may create a third possible scenario in the event that an
uncontrollable process of civil riots takes place. In this case, anarchy may prevail and no
form of collective action at all would be possible and the future of a democracy and a
market economy would be extremely uncertain.
Thus, we can identify at least two Cuban coalitions with partially common interests and
partially differing ones. Those who hold positions under the current regime, and those
outside the government, including exiled Cubans. Based on the previous reasoning, one
might assume that, after the Castro era, the first and the second group will wish for a
democracy and a market economy. The difference lies in that a subset of individuals
within the second group (let’s refer to them as the intransigents) insists on some form of
justice before undertaking a reform. They also want the transition process to be led by
representatives of their own group, not by Castro’s old party officials. Without these
intransigents, there might be some opportunities for negotiation and this may lead to an
improvement of Paretian nature. However, depending on the influence and strength of
these intransigents, such an improvement may be impossible to achieve.13 On the other
hand, if these intransigents were sufficiently powerful to prevent Castro’s officials to
govern but not powerful enough as to assume power, between them and the other groups,
we would be confronted with a situation similar to the prisoners’ paradox since no
coinciding strategies would emerge and we would face a sub-optimal Paretian situation14.
This would lead us to a fourth possible scenario characterized by a long process
dominated by the inability to undertake reforms, even though some improvements in
terms of economic and individual freedom might be attained.
Under the third scenario and also under the fourth, if we evolve from stagnation to a
situation of violence, is where external forces may jump in and force a solution of
stability that, in principle, may favor foreign interests over Cuban ones. Therefore, for
Cubans living on the island and those abroad, it is in their best interest to try to undertake
some form of Coasian negotiation so that national interest may prevail over others. They
must also settle the issue of justice by adopting more creative solutions, maybe along the
13
It is said that a state which distributes resources among different agents reaches optimum Paretian
balance (by Wilfredo Pareto) when none of the agents can improve its situation without the deterioration of
at least one of the others. This concept can be extended to a transaction of political positions or behaviors.
In other words, one presumes that the objective of any transaction, which may involve a transfer of goods
or behaviors, is that each party improve its situation as a result of the negotiation, even if the outcome is not
entirely satisfactory for both parties.
14
The intransigents can emerge for many different reasons; first, they do not see the benefits of a
negotiation, in other words, they are shortsighted, or because the transaction costs are too high compared to
the benefits.
20
lines of South Africa or other countries that were unable to follow traditional legal
processes due to lack of adequate authorities.
9.
Conclusion
Applying Olson’s logic of collective action to the conditions under which Cuba’s diverse
coalitions are organized, we may conclude that, provided the right conditions arise, both a
market economy and a democracy will be viable in Cuba. As to when these conditions
will materialize remains quite uncertain but, in principle, one can have an influence upon
the turn of events. These conditions include how current coalitions, particularly those
made up by today’s most influential government members, will manage to reach a
Coasian negotiation that will allow them to follow a common agenda. One of the
problems they may face is the size of the group: if too large, negotiations’ transaction
costs will become so high that they may become impossible to undertake. If this group is
unable to reach a common agenda, chaos will prevail and the country may face what we
could denominate a situation of Paretian regression in which all Cubans become losers,
particularly if we measure national interest exclusively by the ability of an economy to
recover, as would be the case in many countries.
Under these circumstances we may argue the possibility of three sub scenarios. Number
one: the armed forces take over power from civilian authorities and keep the country
under control. In this case, the path to follow may remain uncertain but, provided there
are sufficient pressures from abroad, democracy and market economy may be viable.
Number two: dissident groups within the country manage to mediate or help the postCastro government team reach a Coasian negotiation so as to set-up a transition
government which, despite being temporary, is prepared to start some reforms. But the
viability of these reforms may be limited under this scenario as they rely on the
precarious stability of this arrangement. Until now, evidence suggests that dissident
groups have been unable to undertake Coasian negotiations, even among themselves, so
there is no reason to believe they will acquire this capacity overnight considering the
magnitude of this crisis. We must stress, however, that this situation was due to high
transaction costs resulting from Castro’s repression. Once this situation is over, we
believe the costs of transactions may decrease and these negotiations may emerge. Of
course, there is no way to predict this under present conditions.
The diverse coalitions of Cuban exiles that wish to have an influence on Cuba’s future
may play a similar role as mediators or catalysts. Evidently, in all these years, these
groups have been unable to define a common agenda other than general considerations
having no operational value at all. Also, these coalitions do not appear to have tried to
keep contact or maintain any kind of communication with government representatives
although obviously this would have had to be done in great secrecy, considering Castro’s
repression. We assume, however, that this kind of contact could become an extremely
valuable tool when it comes to having an influence on Cuba’s future events. In fact, it
could be the only opportunity for the exiles to have some influence as a group on Cuba’s
internal affairs, since they have no other means to achieve this.
21
Thus, if Cubans’ national interest is confined to the establishment of a democracy and a
market economy in Cuba, which means severely restricting the scope of demands for
justice against those government members who abused power under Castro’s regime,
then it is in the best interest of dissidents and groups outside Cuba to adopt a common
agenda to face a new era without Castro, which includes the following coordinated
actions: a) defining a working program to set up a democratic regime and a market
economy that may be accepted by the main authorities in the country including members
of the current government, but not necessarily Castro’s closest advisors, b) mass
producing of reading material on the different aspects and conditions of Cuba’s
development after Castro, where it will play a role in the international economy and
enjoy civil liberties of which it has been deprived for so many years and c) conducting
various activities aimed at creating relationships among Cubans to discuss the country’s
future and break the monopoly of the debate concerning Cuba’s future which until now
has been exclusively held by Castro.
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